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Question 2 + The Management of "Tanjung Uda Berhad" is planning a RM4,000,000 expansion this year. The expansion can be financed by issuing either common shares of bonds. The new common share can be sold for RM$5 per share. The bonds can be issued with a 12% coupon rates. The firm's existing preference share pay dividends of RM$2 per share. The company's corporate income tax is 30%. The financial statement of Tanjung Uda Berhad is as follow:- TanjungUdaBerhad Balance Sheet as at 31st December 2021+ RM$ 2,000,000+ Current Assets Fixed Assets RM$ 8,000,000+ RM$ 10,000,000+ Current Liabilities RM$ 1,500,000+ Bonds: RM$ 4,000,000+ (8.5%, RM1,000 par value) (9%, RM1,000 par Value) RM$ 1,000,000+ Preference Shares (RM$ 100 par value) RM$ 500,000+ Ordinary Shares (RM$ 2 par value) RM$ 2,400,000+ Retained Earnings RM$ 600,000+ RM$ 10,000,000+ Required: a) Calculate the indifference level of EBIT between the two Plans. b) If EBIT is Expected to be RM1,500,000 which plan will result in ahigh EPS?

Question 2 + The Management of "Tanjung Uda Berhad" is planning a RM4,000,000 expansion this year. The expansion can be financed by issuing either common shares of bonds. The new common share can be sold for RM$5 per share. The bonds can be issued with a 12% coupon rates. The firm's existing preference share pay dividends of RM$2 per share. The company's corporate income tax is 30%. The financial statement of Tanjung Uda Berhad is as follow:- TanjungUdaBerhad Balance Sheet as at 31st December 2021+ RM$ 2,000,000+ Current Assets Fixed Assets RM$ 8,000,000+ RM$ 10,000,000+ Current Liabilities RM$ 1,500,000+ Bonds: RM$ 4,000,000+ (8.5%, RM1,000 par value) (9%, RM1,000 par Value) RM$ 1,000,000+ Preference Shares (RM$ 100 par value) RM$ 500,000+ Ordinary Shares (RM$ 2 par value) RM$ 2,400,000+ Retained Earnings RM$ 600,000+ RM$ 10,000,000+ Required: a) Calculate the indifference level of EBIT between the two Plans. b) If EBIT is Expected to be RM1,500,000 which plan will result in ahigh EPS?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 2 + The Management of "Tanjung Uda Berhad" is planning a RM4,000,000 expansion this year. The expansion can be financed by issuing either common shares of bonds. The new common share can be sold for RM$5 per share. The bonds can be issued with a 12% coupon rates. The firm's existing preference share pay dividends of RM$2 per share. The company's corporate income tax is 30%. The financial statement of Tanjung Uda Berhad is as follow:- TanjungUdaBerhad Balance Sheet as at 31st December 2021+ RM$ 2,000,000+ Current Assets Fixed Assets RM$ 8,000,000+ RM$ 10,000,000+ Current Liabilities RM$ 1,500,000+ Bonds: RM$ 4,000,000+ (8.5%, RM1,000 par value) (9%, RM1,000 par Value) RM$ 1,000,000+ Preference Shares (RM$ 100 par value) RM$ 500,000+ Ordinary Shares (RM$ 2 par value) RM$ 2,400,000+ Retained Earnings RM$ 600,000+ RM$ 10,000,000+ Required: a) Calculate the indifference level of EBIT between the two Plans. b) If EBIT is Expected to be RM1,500,000 which plan will result in ahigh EPS?
Transcribed Image Text:Question 2 + The Management of "Tanjung Uda Berhad" is planning a RM4,000,000 expansion this year. The expansion can be financed by issuing either common shares of bonds. The new common share can be sold for RM$5 per share. The bonds can be issued with a 12% coupon rates. The firm's existing preference share pay dividends of RM$2 per share. The company's corporate income tax is 30%. The financial statement of Tanjung Uda Berhad is as follow:- TanjungUdaBerhad Balance Sheet as at 31st December 2021+ RM$ 2,000,000+ Current Assets Fixed Assets RM$ 8,000,000+ RM$ 10,000,000+ Current Liabilities RM$ 1,500,000+ Bonds: RM$ 4,000,000+ (8.5%, RM1,000 par value) (9%, RM1,000 par Value) RM$ 1,000,000+ Preference Shares (RM$ 100 par value) RM$ 500,000+ Ordinary Shares (RM$ 2 par value) RM$ 2,400,000+ Retained Earnings RM$ 600,000+ RM$ 10,000,000+ Required: a) Calculate the indifference level of EBIT between the two Plans. b) If EBIT is Expected to be RM1,500,000 which plan will result in ahigh EPS?
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